2003 INCOTERMS

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INCOTERMS

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INTRODUCTION Language is one of the most complex and

important tools of International Trade. As in any

complex and sophisticated business, smallchanges in wording can have a major impact on

all aspects of a business agreement. Word

definitions often differ from industry to industry.

This is especially true of global trade. Where

such fundamental phrases as "delivery" can

have a far different meaning in the business

than in the rest of the world.

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For business terminology to be effective,phrases must mean the same thing

throughout the industry. That is why theInternational Chamber of Commercecreated "INCOTERMS" in 1936.INCOTERMS are designed to create abridge between different members of theindustry by acting as a uniform languagethey can use

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Costs: who is responsible for the expenses

involved in a shipment at a given point in theshipment's journey?

Control: who owns the goods at a given point in

the journey? Liability: who is responsible for paying damage

to goods at a given point in a shipment's

transit?

NECESSITY

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HISTORY OF THE INTERNATIONAL

CHAMBER OF COMMERCE

The International Chamber of Commerce was foundedin 1919 with an overriding aim that remainsunchanged: to serve world business by promoting

trade and investment, open markets for goods andservices, and the free flow of capital.

Much of ICC's initial impetus came from its firstpresident, Etienne Clémentel, a former French

minister of commerce. Under his influence, theorganization's international secretariat wasestablished in Paris and he was instrumental increating the ICC International Court of Arbitration in1923.

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INITIATION OF INCOTERMS

ICC introduced the first version of

Incoterms - short for "InternationalCommercial Terms" - in 1936. Since then,

ICC expert lawyers and trade practitioners

have updated them six times to keep pace

with the development of internationaltrade.

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UNDERSTANDING INCOTERMS Incoterms are standard trade definitions

most commonly used in international sales

contracts. Devised and published by theInternational Chamber of Commerce, they

are at the heart of world trade.

Incoterms" is an ICC trademark, registered

in the European Union and elsewhere

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The English text is the original and official

version of Incoterms 2000, which have

been endorsed by the United Nations

Commission on International Trade Law

(UNCITRAL). Authorized translations

into 31 languages are available from ICC

national committees.

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PREAMBLES The Preambles explain the areas the terms

cover but do not spell out the obligations of buyer and seller - information that can be

obtained only by consulting the full publishedtexts of the 13 Incoterms.

FAS FREE ALONGSIDE SHIP states that

under FAS the seller delivers when the goodsare placed alongside the vessel at the namedport of shipment. "The buyer has to bear allcosts and risks of loss of or damage to the

goods from that moment.³

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WH Y INCOTERMS Incoterms are international rules that are

accepted by governments, legal

authorities and practitioners worldwide for

the interpretation of the most commonly

used terms in international trade. They

either reduce or remove altogether

uncertainties arising from differinginterpretations of such terms in different

countries

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What are the 13 Incoterms?

Each Incoterm is referred to by a three-

letter abbreviation.

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EXW EX WORKS (named place) FCA FREE CARRIER (named place) FAS FREE ALONGSIDE SHIP (named port of

shipment) FOB FREE ON BOARD (named port of

shipment)

CFR COST AND FREIGHT (named port of

destination)

CIF COST, INSURANCE AND FREIGHT

(named port of destination)

CPT CARRIAGE PAID TO (named place of destination)

CIP CARRIAGE AND INSURANCE PAID TO(named place of destination)

DAF DELIVERED AT FRONTIER (named

place)

DES DELIVERED EX SHIP (named port of destination)

DEQ DELIVERED EX QUAY (named port of destination)

DDU DELIVERED DUTY UNPAID (named

place of destination)

DDP DELIVERED DUTY PAID (named place of destination)

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EXW EX WORKS (named place)

FCA FREE CARRIER (named place)

FAS FREE ALONGSIDE SHIP (named port of shipment)

FOB FREE ON BOARD (named port of shipment)

CFR COST AND FREIGHT (named port of destination)

CIF COST, INSURANCE AND FREIGHT (named port of destination)

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CPT CARRIAGE PAID TO (named place of destination)

CIP CARRIAGE AND INSURANCE PAID TO (named place of

destination)

DAF DELIVERED AT FRONTIER (named place)

DES DELIVERED EX SHIP (named port of destination)

DEQ DELIVERED EX QUAY (named port of destination)

DDU DELIVERED DUTY UNPAID (named place of destination)

DDP DELIVERED DUTY PAID (named place of destination)

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ICC recommends that "Incoterms 2000"

be referred to specifically whenever the

terms are used, together with a location.

For example, the term "Delivered at

Frontier" (DAF) should always be

accompanied by a reference to an exact

place and the frontier to which delivery isto be made.

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CORRECT USE Here are three examples of correct use of

Incoterms:

EXW EX WORKS (Lalu Khet) Incoterms 2000

FCA Kuala Lampur Incoterms 2000

FOB Karachi Incoterms 2000

DDU Frankfurt Schmidt GmbH Warehouse 4

Incoterms 2000

DAF Mona Bao Bonded Ware house Incoterms

2000

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WH Y DO INCOTERMS NEED

REVISING PERIODICALLY?

The main reason is the need to adapt

Incoterms to contemporary commercial

practice. For instance, in the 1990 version,

the clauses dealing with the seller's

obligation to provide proof of delivery

allowed paper documentation to bereplaced by e-mail for that purpose for the

first time

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Under FAS (FREE ALONGSIDE SHIP) the

seller is required to clear the goods for

export. This is a reversal from previous

Incoterms versions, which required the

buyer to arrange for export clearance.

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Under DEQ (DELIVERED EX QUAY) the

buyer is required to clear the goods for

import and to pay for all formalities, duties,

taxes and other charges upon import. This

is a reversal from previous Incoterms

versions, which required the seller to

arrange for import clearance.

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What are "E"-terms ³F"-terms ³C"-

terms and ³D"-terms. What does that mean?

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THE GROUPS

E EXW (DEPARTURE)

F FCA ± FAS ± FOB (MAIN CARRIAGE UN PAID)

C CFR- CIF - CPT ± CIP (MAIN CARRIAGE PAID)

D DAF- DES - DEQ ± DDU ± DDP (ARRIVAL)

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EXW Under the "E"-term (EXW), the seller only

makes the goods available to the buyer at the

seller's own premises. It is the only one of thatcategory.

Deals With Departure

the seller makes the goods available at hispremises.

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F TERMS

Under the "F"-terms (FCA, FAS and FOB), the

seller is called upon to deliver the goods to acarrier appointed by the buyer.

Main carriage Unpaid

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C TERMS

Under the "C"-terms (CFR, CIF, CPT and

CIP), the seller has to contract for carriage,but without assuming the risk of loss or

damage to the goods or additional costs due

to events occurring after shipment or dispatch.

Main carriage paid

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D TERMS

Under the "D"-terms (DAF, DES, DEQ, DDUand DDP), the seller has to bear all costs

and risks needed to bring the goods to the

place of destination.

Arrival

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INCO TERMS EXW (ex works) at a named point of

origin (NAMED PLACE) (e.g., ex factory, ex

mill, ex warehouse). Under this term, the

price quoted applies only at the point of

origin and the seller agrees to place the

goods at the disposal of the buyer at the

specified place on the date or within theperiod fixed. All other charges are for the

account of the buyer .

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One of the simplest and most basic shipmentarrangements places the minimum responsibility on

the seller with greater responsibility on the buyer . Inan EX-Works transaction, goods are basically madeavailable for pickup at the shipper/seller's factory or warehouse and "delivery" is accomplished when themerchandise is released to the consignee's freight

forwarder. The buyer is responsible for makingarrangements with their forwarder for insurance,export clearance and handling all other paperwork.

EX-WORKS

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FCA (FREE CARRIER) In this type of transaction, the seller is

responsible for arranging transportation, but heis acting at the risk and the expense of the

buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA theseller chooses and works with the freightforwarder or the carrier. "Delivery" isaccomplished at a predetermined port or destination point and the buyer is responsiblefor Insurance

Main carriage unpaid

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FCA (free carrier) to a named place

This term replaces the former 'FOB named

inland port" to designate the seller's

responsibility for the cost of loading goods

at the named shipping point. It may be

used for multimodal transport, container

stations, and any mode of transport,including air.


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FAS (free alongside sh

ip) at anamed port of export.

This includes the price for the goods, plus

charges to deliver the goods from thefactory to alongside the vessel at the exit

port. The seller handles the cost of

unloading and wharfage. The buyer covers

the cost to load the goods on the vesseland all the insurance and transportation

costs to the destination port.


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FAS (Free Alongside Ship)

In these transactions, the buyer bears all the

transportation costs and the risk of loss of

goods. FAS requires the shipper/seller to clear

goods for export, which is a reversal from past

practices. Companies selling on these terms

will ordinarily use their freight forwarder to clear

the goods for export. "Delivery" is accomplishedwhen the goods are turned over to the Buyers

Forwarder for insurance and transportation.


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FOB (Free On Board) One of the most commonly used-and misused-terms,

FOB means that the shipper/seller uses his freight

forwarder to move the merchandise to the port or

designated point of origin. Though frequently used todescribe inland movement of cargo, FOB specifically

refers to ocean or inland waterway transportation of

goods. "Delivery" is accomplished when the

shipper/seller releases the goods to the buyer'sforwarder. The buyer's responsibility for insurance and

transportation begins at the same moment.» Main carriage unpaid

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CLARIFICATION FOB (free on board) at a named port of

export. This includes the FAS cost, plus

the cost to load the goods on the vessel.

The buyer pays for insurance and

transportation to the foreign port.

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CFR (cost and freight) to a

named overseas port of import

. Under this term, the seller quotes a price

for the goods that includes the cost of transportation to the named point of

debarkation. The cost of insurance is left

to the buyer's account. (Typically used for

ocean shipments only.)Main carriage paid

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CFR (COST AND FREIGHT) This term formerly known as CNF (C&F) defines two

distinct and separate responsibilities-one is dealingwith the actual cost of merchandise "C" and the other

"F" refers to the freight charges to a predetermineddestination point. It is the shipper/seller'sresponsibility to get goods from their door to the portof destination. "Delivery" is accomplished at thistime. It is the buyer's responsibility to cover

insurance from the port of origin or port of shipmentto buyer's door. Given that the shipper is responsiblefor transportation, the shipper also chooses theforwarder. Main carriage paid

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CIF (COST, INSURANCE AND

FREIGHT) This arrangement similar to CFR, but instead of

the buyer insuring the goods for the maritime

phase of the voyage, the shipper/seller willinsure the merchandise. In this arrangement,

the seller usually chooses the forwarder.

"Delivery" as above, is accomplished at the port

of destination. This includes the FOB cost, plus

all insurance and transportation to costs to the

foreign port.

Main carriage paid

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CPT (CARRIAGE PAID TO) In CPT transactions the shipper/seller has

the same obligations found with CIF, with

the addition that the seller has to buycargo insurance, naming the buyer as the

insured while the goods are in transit.

Main carriage paid

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CIP (CARRIAGE AND INSURANCE

PAID TO) This term is primarily used for multimodal

transport. Because it relies on the carrier's

insurance, the shipper/seller is only required to

purchase minimum coverage. When this

particular agreement is in force, Freight

Forwarders often act in effect, as carriers. Thebuyer's insurance is effective when the goods

are turned over to the Forwarder.

Main carriage paid

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DAF (DELIVERED AT FRONTIER)

Here the seller's responsibility is to hire aforwarder to take goods to a named frontier,which usually a border crossing point, and clear

them for export. "Delivery" occurs at this time.The buyer's responsibility is to arrange withtheir forwarder for the pick up of the goods after they are cleared for export, carry them across

the border, clear them for importation and effectdelivery. In most cases, the buyer's forwarder handles the task of accepting the goods at theborder across the foreign soil. Arrival

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DES (DELIVERED EX SHIP

)

In this type of transaction, it is the seller's

responsibility to get the goods to the port

of destination or to engage the forwarder

to the move cargo to the port of

destination uncleared. "Delivery" occurs at

this time. Any destination charges thatoccur after the ship is docked are the

buyer's responsibility

Arrival.

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DEQ (DELIVERED EX QUAY)

In this arrangement, the buyer/consignee

is responsible for duties and charges and

the seller is responsible for delivering the

goods to the quay, wharf or port of

destination. In a reversal of previous

practice, the buyer must also arrange for customs clearance.

Arrival

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DDP (DELIVERED DUTY PAID)

DDP terms tend to be used in intermodal or courier-

type shipments. Whereby, the shipper/seller is

responsible for dealing with all the tasks involved inmoving goods from the manufacturing plant to the

buyer/consignee's door. It is the shipper/seller's

responsibility to insure the goods and absorb all costs

and risks including the payment of duty and fees.Arrival

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DDU (DELIVERED DUTY UNPAID)

This arrangement is basically the same as

with DDP, except for the fact that the

buyer is responsible for the duty, fees and

taxes. Arrival

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DDP Delivered to the buyer's door duty paid.

Arrival

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EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

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EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ DDU DDP

SERVICESEx

Works

FreeCarrie

r

FreeAlongside

Ship

FreeOnboardVessel

Cost & Freigh

t

CostInsurance& Freight

CarriagePaid To

CarriageInsurance

Paid To

DeliveredAt

Frontier

DeliveredEx Ship

DeliveredEx Quay

DutyUnpaid

DeliveredDuty

Unpaid

DeliveredDuty Paid

WarehouseStorage

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

WarehouseLabor


ExportPacking


LoadingCharges

Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

InlandFreight

BuyerBuyer/Seller*

Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

TerminalCharges

Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Forwarder'sFees

Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading OnVessel

Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Ocean/Air

Freight Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller

ChargesOn ArrivalAtDestination

Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Buyer Buyer Seller Seller Seller

Duty, Taxes& CustomsClearance

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller

Delivery ToDestination

Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller

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Load to

truck

Export-

duty

paymen

t

Transpo

rt to

exporte

r's port

Unload

from

truck at

the

origin's

port

Landin

g

charges

at

origin's

port

Transpo

rt to

import's

port

Landin

g

charges

at

importe

r's port

Unload

onto

trucks

from

the

importe

rs' port

Transpo

rt to

destinat

ion

Insuran

ce

Entry -

Custom

s

clearan

ce

Entry -

Taxatio

n

EXW No No No No No No No No No No No No

FCA Yes Yes Yes No No No No No No No No No

FAS Yes Yes Yes Yes No No No No No No No No

FOB Yes Yes Yes Yes Yes No No No No No No No

CFR Yes Yes Yes Yes Yes Yes No No No No No No

CIF Yes Yes Yes Yes Yes Yes No No No Yes No No

CPT Yes Yes Yes Yes Yes Yes No No No No No No

CIP Yes Yes Yes Yes Yes Yes No No No Yes No No

DAF Yes Yes Yes Yes Yes Yes No No No No No No

DES Yes Yes Yes Yes Yes Yes No No No Yes No No

DEQ Yes Yes Yes Yes Yes Yes Yes No No Yes No No

DDU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No

DDP Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

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GROUPS Group E - where the goods are made available

to the buyer at the seller's premises;

Group F - where the seller must deliver thegoods to a carrier appointed by the buyer;

Group C - where the seller must contract for thecarriage of the goods without assuming risk of loss of, or damage to the goods or additional

costs due to events occurring after shipment; Group D - where the seller has to bear all costsand risks required to bring the goods to theplace of destination

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Group E Departure

EXW - Ex Works

Named place - Any mode of transport The seller must place the goods at the

disposal of the buyer at the seller's

premises or another named place not

cleared for export and not loaded on anycollecting vehicle

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Group F Main Carriage Unpaid

FCA - Free Carrier Named place - Any mode of transport The seller must deliver the goods, cleared for export, tothe carrier nominated by the buyer at the named place.

FAS - Free Alongside ShipNamed port of shipment - Maritime and inland waterway transport only The seller must place the goods, cleared for export,alongside the vessel at the named port of shipment.

FOB - Free on BoardNamed port of shipment - Maritime and inland waterway transport only The seller delivers the goods, cleared for export, whenthey pass the ship's rail at the named port of shipment.

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Group C Main Carriage Paid

CFR - Cost and FreightNamed port of destination - Maritime and inland waterway transport only The seller delivers the goods when they pass the ship's

rail in the port of shipment and must pay the costs andfreight necessary to bring the goods to the named port of destination. The buyer bears all additional costs andrisks after the goods have been delivered (over theship's rail at the port of shipment).

CIF - Cost Insurance and FreightNamed port of destination - Maritime and inland waterway transport only The obligations are the same as under CFR with theaddition that the seller must procure insurance againstthe buyer's risk of loss of, or damage to the goods during

carriage.

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CPT - Carriage Paid ToNamed place of destination - Any mode of transport The seller delivers the goods to the nominated carrier and must also pay the cost of carriage necessary tobring the goods to the named destination. The buyer

bears all additional costs and risks after the goods havebeen delivered to the nominated carrier.

CIP - Carriage and Insurance Paid ToNamed place of destination - Any mode of transport The obligations are the same as under CPT with the

addition that the seller must procure insurance againstthe buyer's risk of loss of, or damage to the goods duringcarriage.

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Group D Arrival

DAF - Delivered at Frontier Named place - Any mode of transport The seller must place the goods at the disposal of thebuyer on the arriving means of transport not unloaded,cleared for export but not cleared for import, at thenamed point and place at the frontier.

DES - Delivered Ex ShipNamed port of destination - Maritime and inland waterway transport only The seller delivers when the goods are placed at thedisposal of the buyer on board the ship, not cleared for

import, at the named port of destination. DEQ - Delivered Ex QuayNamed port of destination - Maritime and inland waterway transport only The seller delivers when the goods are placed at thedisposal of the buyer, not cleared for import, on the quay

at the named port of destination.

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DDU - Delivered Duty Unpaid

Named place of destination - Any mode of transport The seller must deliver the goods to the buyer, notcleared for import, and not unloaded at the named placeof destination.

DDP - Delivered Duty PaidNamed place of destination - Any mode of transport The seller must deliver the goods to the buyer, clearedfor import, and not unloaded at the named place of destination.

As can be seen this list runs from the term where thebuyer has most of the responsibility (EXW) through to

that where the seller has the majority of the responsibility(DDP). It is worth noting that in Incoterms 2000 the onlyterm that requires the buyer to clear the goods for export(including obtaining any export licence necessary) isEXW and the only term that requires the seller to clear the goods for import (including obtaining any import

licence necessary) is DDP.

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Group F ± Main carriage unpaid

FCA ± Free Carrier (named place) the seller hands over the goods, cleared for export, into

the custody of the first carrier (named by the buyer) atthe named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and

containerised / multi-modal transport. FAS ± Free Alongside Ship (named loading port)

the seller must place the goods alongside the ship at thenamed port. The seller must clear the goods for export;this changed in the 2000 version of the Incoterms.Suitable for maritime transport only.

FOB ± Free On Board (named loading port)

the classic maritime trade term, Free On Board: seller must load the goods on board the ship nominated by thebuyer, cost and risk being divided at ship's rail. Theseller must clear the goods for export. Maritime transport

only

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Group C ± Main carriage paid

CFR ± Cost and Freight (named destination port)

seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goodshave crossed the ship's rail. Maritime transport only.

CIF ± Cost, Insurance and Freight (named destination port)

exactly the same as CFR except that the seller must in additionprocure and pay for insurance for the buyer. Maritime transport only.

CPT ± Carriage Paid To (named place of destination)

the general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passeswhen the goods are handed over to the first carrier.

CIP ± Carriage and Insurance Paid to (named place of destination)

the containerised transport/multimodal equivalent of CIF. Seller paysfor carriage and insurance to the named destination point, but riskpasses when the goods are handed over to the first carrier.

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Group D ± Arrival

DAF ± Delivered At Frontier (named place) It can be used when the goods are transported by rail and road. The

seller pays for transportation to the named place of delivery at thefrontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of riskoccurs at the frontier.

DES ± Delivered Ex Ship (named port) Where goods are delivered ex ship, the passing of risk does not

occur until the ship has arrived at the named port of destination andthe goods made available for unloading to the buyer. The seller paysthe same freight and insurance costs as he would under a CIFarrangement. Unlike CFR and CIF terms, the seller has agreed tobear not just cost, but also Risk and Title up to the arrival of the

vessel at the named port. Costs for unloading the goods and anyduties, taxes, etc« are for the Buyer. A commonly used term inshipping bulk commodities, such as coal, grain, dry chemicals - - -and where the seller either owns or has chartered, their own vessel.

DEQ ± Delivered Ex Quay (named port)

It means the same as DES, but the passing of risk does not occur

until the goods have been unloaded at the port of destination.

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DDU ± Delivered Duty Unpaid (named destination place)

It means that the seller delivers the goods to the buyer to

the named place of destination in the contract of sale. The

goods are not cleared for import or unloaded from any

form of transport at the place of destination. The buyer is

responsible for the costs and risks for the unloading, duty

and any subsequent delivery beyond the place of

destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty,

unloading and subsequent delivery beyond the place of

destination, then this all needs to be explicitly agreed upon

in the contract of sale.

DDP ± Delivered Duty Paid (named destination place)It means that the seller pays for all transportation costs

and bears all risk until the goods have been delivered and

pays the duty. Also used interchangeably with the term

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